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The lowdown on relocation allowance taxation in South Africa

By May 29, 2023October 5th, 2023FinGlobal

The lowdown on relocation allowance taxation in South Africa

May 29, 2023


Relocating for work purposes can be challenging and stressful, both from a logistical and cost perspective. In the past, the South African Revenue Service (SARS) permitted employers to provide a tax-free relocation allowance equivalent to one month’s basic salaryto cover the costs of settling in after relocation, without the employee having to substantiate any expenses. This is no longer the case. Let’s take a look at what you need to know about the relocation allowance and how it’s taxed in South Africa.

With SARS being an organisation interested primarily in tax, they’re not big on things that are ‘tax-free’. As such, in 2017 they did away with the tax provisions that allowed employers to give their employees the equivalent of one-month’s salary, free from tax as a relocation allowance without having to prove any actual expenditure. Now, in order to utilise the relocation allowance tax exemption, individuals will need to verify expenditure, and the employer can only reimburse them for their spend. To this end, it is necessary for employees to keep proof of their relocation expenses to claim the relocation allowance tax exemption.

Treatment of relocation allowances by SARS: taxable or not?

Where an employer assists with expenses involved in relocating an employee, this amounts to a taxable benefit unless the exemption in section 10(1)(nB) of the Income Tax Act is invoked for qualifying expenditure.

  • Only actual costs incurred will qualify for the exemption.
  • Only reimbursement by employer of permissible costs qualify, which means any up-front allowance must be taxed in full.
  • In practice, employees will need to show proof of their settling-in costs incurred before they can be reimbursed by their employers.

What are qualifying relocation expenses?

There are three primary qualifying categories involved in relocation expenses.

  1. Travel expenses
  2. Expenses incurred by the employee in selling their previous home and settling into the new home (settling-in costs).
  3. Costs involved in temporary accommodation in certain circumstances (temporary accommodation cost).

What are travel expenses?

Expenses incurred by the employee in moving their household members and goods from the previous place of residence to the new place of residence.

What are the settling-in costs?

The first sub-category relates to the employee’s new place of residence:

  • Bond registration and legal fees paid for a new residence bought by the employee.
  • Transfer duty for the new residence.

The second sub-category relates to the employee’s previous place of residence:

  • Bond cancellation fees
  • Agent’s commission on the sale

The third sub-category of settling-in costs includes:

  • New school uniforms
  • Curtain replacement
  • Car registration fees
  • Telephone/internet connection costs
  • Costs of water and electricity connection

What are temporary accommodation costs?

Such costs are those incurred when hiring residential accommodation, such as a hotel or Airbnb for the employee or their household members, as long as these costs fall within 183 days of the individual’s effective transfer/appointment. Such residential accommodation must have been temporary while the employee was in the process of seeking out permanent accommodation.

What about relocation expenses that do not qualify for the exemption?

Where an employer reimburses an employee for costs incurred, these will be treated as a taxable benefit, and must be subject to employee tax deduction.

  • Where an employer compensates an employee for their loss on the sale of their previous home.
  • Architectural fees alteration or renovation of the employee’s new residence.

What tax codes apply for the relocation allowance?

  • Tax exempt relocation allowance expenditure: Actual expenses incurred must reflect on the individual’s IRP5/IT3(a) under the code 3714.
  • Taxable benefits: These amounts must appear under code 3713.

Long story short? Relocation allowance tax benefits, summarised:

  1. There must be an employer/employee relationship.
  2. The relocation must be offered by the employer. This means that the benefit does not form part of the employer’s obligation.
  3. The relocation must be to a different town, province or country, and not simply to a nearby branch.
  4. The benefit must equate to the exact amount incurred by the employee in actual expenditure.
  5. The employee must be able to verify such expenditure, through invoices and EFT proof of payments.

FinGlobal: financial relocation specialists for South Africans

Relocating for work can be stressful. Moving your finances shouldn’t have to be. FinGlobal has already assisted thousands of clients in over 105 countries with various aspects of their cross-border financial portfolios, and we’re ready to offer you the same convenient, seamless service. From expat tax compliance, to tax clearance and tax emigration, choosing to partner with FinGlobal for your financial moves will significantly reduce your stress levels.

To see how we can be of assistance, please leave us your contact details and we will be in touch to discuss your specific requirements.

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